Tuesday, August 25, 2009

S&P/Case-Shiller: June 2009

Today’s release of the S&P/Case-Shiller (CSI) home price indices for June 2009 showed a continued bounce in prices with the Composite-10 index increasing 1.40% on a month-to-month basis.

Again, this is another notable development but it’s important to put today’s results in perspective before getting too confident that the bottom is in for house prices.

As with last month, today’s results showed that metro areas with typically strong seasonality worked to pull up the composite series while many other markets gained modestly leaving only Detroit and Las Vegas as decliners.

It’s important to remember that the CSI data is lagged by two months and that the metro markets with strong seasonality (… especially recently) tend to reach their seasonal peak between June and July and then typically decline through the fall reaching a seasonal bottom in February.

Also, although Standard & Poor’s publishes a seasonally adjusted series, their seasonal adjustment appears to be underestimating the degree of seasonality that is currently present in many markets (… Boston is a good example).

In any event, as the summer pricing cools the Composite indices will more than likely reflect the aggregate movement of prices declines just a strongly as it has captured the spring-summer bounce.

Also, looking at the 1990s-era comparison charts below its obvious that even after the main downward thrust has been reached, the housing markets have a long tough slog ahead with the ultimate bottom likely many years out…. Or if we are currently experiencing the Japanese model… decades out.

Further, is important to remember that the 90s housing recovery played out against the backdrop of a truly unique period of growth in the wider economy fueled primarily by novel and ubiquitous technological change (cell phones, internet, personal computers, telecommunications, etc).

The 10-city composite index declined 15.13% as compared to June 2008 while the 20-city composite declined 15.44% over the same period.

Topping the list of regional peak decliners were Las Vegas at -54.29%, Miami at -48.24%, Detroit at -45.30% and Tampa at -40.82%.

Additionally, both of the broad composite indices showed significant declines slumping -32.30% for the 10-city national index and 31.31% for the 20-city national index on a peak comparison basis.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a month-to-month basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.